Thorleif Enger: Much brighter in Agri

February 12, 2001, 00:00 CET

"There's now every reason for a brighter view of Agri's future. Last year we had to highlight how serious the situation was. Now we have much to look forward to," says senior executive vice president Thorleif Enger.

Thorleif Enger's delight with Hydro Agri's results for 2000 is visible. "We can now say that Hydro Agri is over the worst with regard to manning reductions and restructuring," he says. "We have done the heavy work, but I have to point out that this is an ongoing process. Productivity improvements shall be a trade mark of Agri activities."

Enger will insist on significant productivity improvements – throughout the system – year after year. "It's the only way we can avoid the dramatic situation we found ourselves in 1999. And I think the organization accepts this. I see a lot of initiatives that bode well for the future," he says.

Enger has been impressed with the loyal and rapid follow-up once decisions were taken. The Hydro Agri Turnaround process has been carried out with a vigor and speed that surpassed expectations. This has been an extremely difficult period for everyone in the organization. The manning reduction process has involved cutting nearly 3,000 jobs in the total Agri Turnaround period from 1999 to 2001, around 1,500 of which were in 2000. This is probably the largest turnaround operation ever undertaken in a Norwegian company.

"Most of those affected have already left. This has been very hard on them, but it is also difficult for those who are staying on and for the leaders in the process. When I reflect on how many countries and plants have been affected, I have to say there has been surprisingly little friction and conflict," he says.

Unique position
Enger has no doubts about Hydro remaining a major international fertilizer company. "Having worked in this sector for some time, I've become increasingly convinced that Hydro Agri is in a unique competitive position.

"Firstly we are a global company. We are large and have sufficient expertise and production facilities to be able to develop further. The improvements we have implemented are linked to productivity and costs, but our commercial creativity will also bring us pleasing results in the long term."

"Secondly, Agri naturally strives to meet Hydro's required rate of return. It should be possible for Hydro Agri to become the most profitable agri-sector company in the world. Thirdly, Hydro should be in a particularly strong position with regard to others in the chemical industry."

So there is no reason to expect Hydro to sell the Agri area, as the media and some analysts occasionally speculate?

"Let me put it this way – as part of Hydro we have to deliver results in the short term and offer long-term potential on the same lines as Oil and Energy and Light Metals. We can't survive on traditions alone," Enger says.

Price increases for plant nutrition
Hydro's previous annual report had predicted a lower result for 2000. What does the actual result tell say about the company's performance"

"Firstly, that the measures implemented have been more effective than expected. Secondly, that developments in the fertilizer market have been better than forecast. We had expected energy prices to eat up much of the gain from higher fertilizer prices," he says.

"It now seems that fertilizer prices have risen higher relative to energy prices, which has had a considerable effect on our results. This is of course very gratifying and is the reason for the 2000 result being as good as it is."

But increased prices also mean more imports in the European markets?

"Yes, there is an increase in imports from Eastern Europe and the former Soviet Union, but this is not unexpected. Imports in 1999 were unusually low. A certain need for imported fertilizer is no cause for alarm, rather a sign of encouragement. After all, Hydro isn't the only company to reduce capacity."

Competitive edge
"In connection with the restructuring in Europe, we are trying to sell Hydro Agri's products in the markets where we have the best competitive edge. Basically it's a question of achieving the best possible price and the lowest possible logistics costs. These are already down," he says.

"The new organization offers better opportunities for the optimization of the flow of goods, which we are now trying to implement. We are aiming for a global approach, which will allow us to deliver the goods at the point that gives us the best return.

"The large plants are in a position to deliver products anywhere in the world, and this is an interesting opportunity that we endeavored to maintain in 2000. We intend to realize this potential to an even greater extent in 2001 and 2002."

He points out the importance of thinking beyond the boundaries of national territories. It is important to see the organization and oneself as part of a global enterprise, he says: "I believe this is beginning to sink in. It's essential to have a business model that supports this perspective."

Satisfactory results from Gas and Chemicals
It is normal that the results of the divisions within Hydro Agri show a degree of variation. In the case of Hydro Gas and Chemicals, it is a fact that when ammonia and fertilizer prices rise, so do the input factors for this division. In this respect it has been a difficult year, but all the same the division has produced a respectable bottom line for 2000.

"The improvement processes carried out in Hydro Gas and Chemicals have produced good results. All in all, the figures from this division are satisfactory. Besides, Gas and Chemicals have several environmental products that are in a period of growth, and there will be strong focus on these in future," Enger points out.

The Danish Korn- og Foderstof Kompagniet (KFK) is the area Enger is least satisfied with: "It's clear that the Danish coarse feed market, as KFK calls it, has too much capacity. The implementation of measures has taken too long here. We have to achieve a rapidly improving position, and that will be a top priority."

More focus on specialty fertilizer
It is an advantage for Hydro Plant Nutrition to produce both standard and specialty products, which have a mutually positive effect. This reduces logistics costs.

"With regard to specialty fertilizer, it has to be said that volume is critical for success," he says. "We would like to grow here and we will prioritize work on developing this operation with the aim of attaining an interesting volume and perhaps also a more complete range of products. At present there is a rather one-sided emphasis on calcium nitrate."

In overseas markets, Enger says that the purchase of Trevo in Brazil has met expectations. "South Africa may also prove an interesting market for us, but the restructuring process in Kynoch is taking longer and proving more difficult than anticipated. The large-scale Jordan project will, however, be discontinued, as it has scored too low in the list of opportunities both within and outside of Agri."

What about India and China?

"Both are difficult markets," he says. "We don't know what direction they are developing in. However, China is on its way into the World Trade Organization and is committed to opening its borders for imports of both NPK and other fertilizer products. China is at the top of our list, but much depends on how much the authorities loosen their grip on the market. Otherwise, we have a solid presence in most of the markets in Asia and Oceania.

"The most pleasing progress in the overseas market has in fact been in Latin America. This is a challenging area, but we now have very good results there. The same is true for North America, where results are also very positive."

Facts and figures - fourth quarter 2000 (PDF 337KB)